The Economic Espionage Act of 1996: Are We Finally Taking Corporate Spies Seriously?

Article excerpt

I. INTRODUCTION

For many companies, information is the most important resource available. Many executives only realize the value of their corporation's secrets when these secrets are stolen and disclosed to a competitor, resulting in huge economic losses.(1) Since the end of the Cold War, American companies have increasingly been targeted by spies funded by competitors or foreign nations, or both, in search of trade secrets.(2) The Economic Espionage Act of 1996 (EEA),(3) enacted to facilitate the criminal prosecution of industrial spies,(4) constitutes a new weapon against corporate spying. It makes the theft of proprietary economic information a felony and protects trade secrets at the federal level.(5) By discouraging improper trade conduct by both foreign governments and private parties, it reflects Congress's recognition of the need to protect U.S. technology from unethical business competitors. The EEA does so by providing severe criminal penalties for those prosecuted under its provisions.(6)

The scope of this Article is to analyze the EEA. Part II describes the nature of international and domestic economic espionage(7) and why it is a threat to corporate success and national security. Part III looks at legislation in existence prior to the EEA and analyzes why that legislation failed to substantially curb the theft of trade secrets, particularly as it related to small businesses and information stolen by foreign participants. Part IV examines the EEA itself, its legislative history, and the case law that has emerged since its enactment. An analysis of the statute suggests that its provisions are very broad and that if not used selectively, it could potentially hamper the mobility of workers in the labor market, thereby reducing innovation and creativity in the U.S. economy. Part V considers the strategic implications of the Act for practitioners and corporations. This Article concludes, in Part VI, by suggesting a proactive plan allowing companies to protect their trade secrets from foreign spies and from their own employees who may sell that information to the highest bidder. Organizations that have implemented internal security programs are likely to be in the best position to protect their trade secrets from dishonest competitors while insulating themselves from a trade secrets prosecution.

II. THE PROBLEMS OF INDUSTRIAL ESPIONAGE

Innovation, a significant factor in economic growth, requires a substantial investment of time, money and human resources.(8) If companies lose valuable secrets to industrial espionage, they cannot profit by utilizing their competitive advantage.(9) In turn, if they are unable to recoup their investments in research and development, they lose their motivation to innovate and bring new products or services to consumers. The consequences include higher prices charged to consumers,(10) as well as a decrease in new technologies, creative inventions, and improvements.(11) Furthermore, the very concept of privacy "is threatened when industrial espionage is condoned or is made profitable."(12)

Since the end of the Cold War, the focus of intelligence and counterintelligence efforts has shifted from military and political targets to technological and economic ones.(13) Nations have been reshaping their intelligence agencies and investigative resources to be more responsive to the competitive and global needs of businesses.(14) The Cold War has been replaced by the Economic War.(15) The increase in trade secret theft has placed the technologies of U.S. companies, ranging from simple textile formulas to complex defense technology, at great risk.(16) Pricing data, customer lists, information on product development, basic research, sales figures, and marketing plans appear to be the most coveted items.(17) In 1997, more than 1,100 documented incidents of economic espionage and at least 550 suspected incidents were reported by U.S. companies.(18) The Federal Bureau of Investigation (FBI), which is now devoting more resources to fight industrial espionage, has reported that its economic espionage caseload doubled from 400 in 1994 to 800 in 1995. …